The Role of the World Bank in the Economic Development of Korea


Paper for Japan Times, September 1977.


              The World Bank and the International Monetary Fund, under the dedicated guidance of President Robert S. McNamara and Managing Director H. Johannes Witteveen, have steadily increased the effectiveness with which they have served their vital function of providing financial and technological assistance to help the developing nations of the world slough off the handicap of economic backwardness and the burden of poverty.

The underlying philosophy that motivates these vital activities of the IBRD and the IMF is one the developing nations fully share: The best interests and fundamental well-being of both developed and developing nations ultimately depend on the equitable and balanced development of both.

In our endeavors to achieve this goal, and thus narrow the gap between the "have" and the "have-not" nations, the role and the responsibilities of the World Bank and the IMF are now greater than ever. Although the immediate effects of the oil crisis have been weathered, there are still many impediments to the attainment of this goal. Among these are the persistence of poverty, the uneven distribution of resources, international inflation, trade imbalance, and the increasing drift toward the restriction of trade. These problems, which can be solved only with wisdom and international cooperation, are among the issues that must be considered by those who will gather to attend the Thirty-Second Annual Meeting of the World Bank and the International Monetary Fund.

On the occasion of this meeting, I would like to review the part that the World Bank has played in the development of my own country, the Republic of Korea, and to indicate some of the directions in which I feel these organizations should move in responding to the problems that Korea and the developing world now face and must overcome in the years ahead.

Korea has been one of the major recipient countries of World Bank assistance. Between 1962 and the end of 1976, IBRD loans to Korea totaled some $1,364 million on a commitment basis, accounting for about 12 percent of the nation's total foreign capital commitments and some 28 percent of its public loans during this period. During 1977 additional commitments of $312 million have been received. This assistance has been devoted to major development projects in such areas of high-priority concern to the bank as agriculture, transportation, development financing, and education.

World Bank assistance has helped Korea to expand its agricultural base and improve crop yields so that in recent years it has once again achieved self-sufficiency in the production of rice. Support for development of harbors, road, and railway networks has facilitated the rapidly increasing movement of domestic and export goods and helped to integrate rural areas into the mainstream of national development. Loans for the funding of development financing companies (DFCs) have helped to foster the sound growth of the nation's small and medium enterprises, while Korea's increasing demand for skilled labor has been met with bank-financed support for the improvement of the nation's vocational schools and the expansion of on-the-job training programs.

Not only has painstaking review by the bank's highly qualified staff and consultants assured the economic efficiency and technical feasibility of the specific projects it assists, the in-depth analyses by the annual appraisal missions that the bank has sent to assess the progress of the Korean economy as a whole have constituted a vital input in establishing and maintaining sound overall economic policy. Without doubt, World Bank assistance has contributed significantly to the formulation of the three five-year economic development plans that Korea has carried out to date, as well as its vital Fourth Plan for 1977-1981; and I can unreservedly recommend to other developing nations that they take the fullest possible advantage of the World Bank's wisdom and experience, and its readiness to share its knowledge.

I would like to turn now to a consideration of the broader problems to which the World Bank must address itself at this critical stage in human history, when the countries of the world have passed beyond the point where each can pursue its short-range national interest without consideration of the long-range consequences to itself and to its neighbors, but countries that do not yet truly constitute a mutually supportive community.

Briefly, these problems are that the developing nations are poor to begin with, and going increasingly into debt-often without thereby achieving any significant margin of national development that exceeds the increase in their populations. Their terms of trade are becoming increasingly unfavorable as the market value of their raw material resources and the products of their labor-intensive industries remains unstable or declines (oil being one of the few significant exceptions), while the prices of the capital goods they require for development steadily inflate. Protectionist curbs on imports and other trade-restrictive measures are increasingly impairing the free flow of goods, which is essential not only for the industrially developing nations but for the economic health and growth of the international community as a whole. As a result, prospects for the sustained growth of the developing nations as a whole remain dim and the living conditions of the vast majority of their 2 billion citizens remain unimproved or, in fact, decline, thus exacerbating the gap between the "have" and "have-not" nations of the world.

These problems, and the consequences of deferring their solution, have been reiterated and exhaustively examined in international forums for more than a decade. Clearly, problems of such magnitude cannot be solved overnight. Beginnings have been made, however, and the very existence of such organizations as the World Bank and the International Monetary Fund is an acknowledgment of the direction further progress must take, which is toward a more significant allocation of the financial and technological resources of the developed nations in redressing the imbalances that impede the development of the "have-not" countries.

The allocations that have been made to date, however, are far from adequate. The official Development Assistance (ODC) target of 1 percent of GNP set by the Development Assistance Committee of the OECD countries at the beginning of the 1960s as the goal for concessional aid for the decade-which many considered modest and certainly achievable without difficulty-has long since been abandoned. Concessional aid provided in 1975 amounted to hardly 0.36 percent of the combined GNP of the OECD nations, or only half the current ODC target of 0.7 percent.

Yet recent studies by the World Bank indicate that this relatively modest 0.7 percent of GNP in concessional assistance would be sufficient to restore the growth rates of the neediest nations to the 6 percent originally set for the Second Development Decade. This would represent a virtually insignificant reduction in the standard of living already enjoyed by the donor countries. And yet, how decisive would be the effect on the living standards of the poverty-stricken masses of this world!

It is my belief that a significant reactivation of the economies of the developing countries can only be achieved to the degree that the developed countries reshape their economic policies along these lines. Consideration should definitely be given to further improvement of the facilities presently available in the International Monetary Fund and the World Bank, but what is most urgently needed in this field is a substantial increase in the resources of these institutions.

Nevertheless, the World Bank's achievements with the funds available to it have been admirable. We welcome the fact that it is giving loan priority to projects that directly ameliorate the conditions of the rural-urban poor by ensuring full employment and increased income, and to social development projects addressed to basic human requirements for water supply, sewerage, health care, shelter, and nutrition.

As I indicated earlier, the World Bank has sought to increase the efficiency of investment and accelerate the transfer of technology by increasing the effectiveness of the projects that it supports through careful appraisal and supervision of their implementation. This system should be expanded still further, so as to assure the efficiency not only of specific projects but also of the role within a sector and among sectors. By doing so, the fullest possible advantage would be taken of the technological expertise of the developed countries, thus maximizing the effectiveness of investment programs and improving the quality of development policy in the recipient countries.

On the other hand, I would like to suggest that at times the bank could afford to be a little less detailed in its supervision. It is far more difficult to apply standardized principles in the area of housing development, for example, than in industrial projects, as recipient nations' modes of living, architectural styles, and building costs differ widely. There can easily be differing evaluations in such matters as the appropriate cost of residential housing for the very poor, as against housing for middle-income people who may have available savings. In its efforts to assist in ameliorating the housing problems of the developing nations, the bank could give greater consideration to the provision of revolving funds to support the implementation of a nation's housing loan policy, leaving the weighing of specific details to the recipient country.

An important aspect of World Bank assistance has been its nonproject program loans. Immediately after the oil shock, the bank provided extensive assistance in this form to help developing nations to tide over their balance of payments deficits. This was clearly an excellent measure that served to meet the urgent needs of developing nations in a direct and timely manner.

It is my understanding, however, that the bank is reluctant to provide program loan assistance in the form of supplementary loans for the projects it supports, lest it impair the recipient country's best effort toward the expeditious completion of these projects. But the needs of the developing nations vary with time and changing conditions, and in recent years many countries have found it quite difficult to finance the local costs of ongoing IBRD projects owing to unexpected cost overruns-which can sometimes run to twice original cost estimates-as a result of the rapid rates of world inflation that have prevailed since the oil crisis. As a consequence, projects are delayed, in turn delaying the disbursement of IBRD loan funds, which further prolongs the project in a vicious circle of increasing cost and delay. This is a phenomenon beyond the control of the recipient countries, and it is hoped that the bank will take greater cognizance of the need, under current circumstances, for supplementary loans for the financing of the local currency needs of ongoing projects.

The World Bank could also give greater attention to the increasing imbalance of trade between the advanced and developing nations resulting from the steady drift toward protectionism and the restriction of trade. In the long run, trade is more vital than aid; and to help increase the exports of the developing nations and reduce international trade friction, the bank could fruitfully apply its expertise to research on comparative advantage within the world market, leading to the formulation of relevant guidelines for long-term export development and export support for the developing nations, and eventually to a rational and mutually supportive international division of labor.

These are a few of the specific matters of policy and practice that I hope might receive the attention of the bank at this annual meeting or in the not-too-distant future, and my citation of them in no way detracts from the invaluable assistance that the World Bank and the International Monetary Fund have rendered to the Republic of Korea and the developing world as a whole during the past three decades. I am grateful for this opportunity to express the appreciation of my government and countrymen for this assistance, and look forward to increased support, on the part of the developed nations, for the efforts being made by these organizations to help the developing nations of the world achieve their goal of equitable national development.